3 Mar 2026·Source: The Hindu

5 min

EconomyInternational RelationsNEWS

West Asia Conflict Escalation Impacts India's Tea Exports

Escalating conflict in West Asia disrupts tea exports, raising costs and transit times.

Indian exporters are facing significant challenges due to the escalating conflict in West Asia, particularly concerning trade disruptions with the United Arab Emirates (UAE), India's second-largest trade partner after the US. Iranian drone strikes on key infrastructure in the region, including UAE ports and airports, have raised concerns following the free trade agreement (FTA) established in 2022. Between April 2025 and February 2026, India's exports to the UAE reached $32.84 billion, while imports totaled $56.59 billion.

The Commerce and Industry Ministry convened a stakeholder consultation on March 2, chaired by Special Secretary Suchindra Misra and DGFT Lav Agarwal, to address the potential impact on India's export-import (EXIM) cargo flows. Key issues discussed included maintaining real-time coordination for monitoring routes, capacity, surcharges, and equipment availability, as well as facilitating time-sensitive exports like perishables and pharmaceuticals. The Confederation of Indian Textile Industry (CITI) noted that the conflict adds to existing challenges such as uncertainty regarding US tariffs and recent reductions in rates under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme.

The conflict also threatens basmati rice exports, with exporters from Punjab and Haryana, who contribute 75-80% of India's basmati rice exports, facing financial and logistical stress. Although 83% of the export target for the financial year 2025-26 was achieved by January 31, nearly 45% of the export value is yet to be received due to disrupted banking channels in West Asia, especially Iran. The government has initiated steps to monitor and address the situation, including creating a dedicated coordination mechanism and asking the RBI and Department of Financial Services to examine export credit availability.

This situation is particularly relevant for UPSC aspirants as it highlights the impact of geopolitical events on the Indian economy and trade, which falls under GS Paper III (Economy) and GS Paper II (International Relations). Understanding the implications of such conflicts on trade routes, payment mechanisms, and export competitiveness is crucial for analyzing India's economic resilience and strategic responses.

Key Facts

Approximately 45–50% of India’s total tea exports are shipped to countries in the West Asian region.

In 2024, India recorded strong export volumes to Iraq (52.59 million kg), UAE (52.71 million kg), Iran (11.25 million kg) and Saudi Arabia (7.94 million kg).

The closure of the Strait of Hormuz will have a direct bearing on tea exports to these regions.

Increased freight charges, rising insurance premiums, and extended transit times will significantly raise transaction costs for tea exporters.

UPSC Exam Angles

GS Paper III (Economy): Impact of geopolitical events on Indian trade and economy

GS Paper II (International Relations): India's trade relations with West Asia and strategic responses to regional conflicts

Potential questions on trade agreements, export promotion schemes, and supply chain resilience

In Simple Words

The fighting in West Asia is causing problems for Indian tea sellers. Because of the conflict, it's harder to ship tea to countries like Iraq and UAE. This means tea shipments are stuck, and it costs more to send them.

India Angle

Many Indian tea businesses depend on selling tea to West Asia. If these sales drop, tea farmers and exporters in India will earn less. This affects their income and the overall tea industry.

For Instance

Think of a local shopkeeper who usually gets supplies from another city. If there's a strike blocking the roads, the shopkeeper can't get the supplies, and customers can't buy them.

This affects everyone because it can lead to higher tea prices and less income for those who grow and sell tea. It shows how events far away can impact our daily lives.

Global conflicts can disrupt trade, impacting local businesses and consumers.

The ongoing conflict in West Asia is significantly impacting India's tea exports, with shipments stranded and trade routes disrupted. Approximately 45-50% of India's tea exports are destined for West Asian countries. In 2024, India recorded substantial export volumes to Iraq, UAE, Iran, and Saudi Arabia.

The closure of the Strait of Hormuz poses a direct threat to exports to these regions. Increased freight charges, rising insurance premiums, and extended transit times are raising transaction costs. Trade route instability is further delaying shipments and straining supply chains.

While trade tensions had eased with the reduction of U.S. tariffs, the conflict presents a new challenge. Tea exports to the UAE and Saudi Arabia, which serve as transit points, are particularly affected.

Expert Analysis

The escalating conflict in West Asia has brought into sharp focus the vulnerabilities of India's trade relationships and the importance of understanding the mechanisms that underpin international commerce. Several key concepts are essential to grasp the full implications of this disruption.

The Free Trade Agreement (FTA) between India and the UAE, signed in 2022, aimed to boost bilateral trade by reducing tariffs and easing trade barriers. The agreement led to the UAE becoming India's second-largest trade partner, with exports reaching $32.84 billion between April 2025 and February 2026. However, the current conflict underscores the risk that geopolitical instability can outweigh the benefits of FTAs, disrupting trade flows and undermining economic partnerships. The disruption highlights the need for diversification of trade partners to mitigate risks associated with reliance on specific regions.

Another crucial concept is the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme. This scheme, designed to reimburse exporters for taxes and duties incurred during the production process, aims to enhance India's export competitiveness. However, recent reductions in RoDTEP rates, coupled with increased logistics and insurance costs due to the West Asia conflict, are creating a double whammy for exporters. This situation illustrates the delicate balance between government support and external factors in maintaining export competitiveness.

The concept of trade routes and their vulnerability is also central to understanding the current crisis. The Strait of Hormuz, a critical waterway through which 20% of global oil flows, is under threat of blockage due to the conflict. Disruption to this and other key routes, such as those through the Red Sea, can lead to increased freight costs, longer transit times, and higher insurance premiums. This directly impacts the cost competitiveness of Indian exports, particularly for sectors like textiles and basmati rice, which operate on narrow margins. The potential blockage of key trade routes necessitates a re-evaluation of supply chain resilience and diversification strategies.

Finally, the disruption in banking channels and payment mechanisms in West Asia, particularly in Iran, highlights the importance of stable financial systems for international trade. With nearly 45% of the value of basmati rice exports from Punjab and Haryana yet to be received, the conflict has created uncertainty about payment timelines and increased the risk of defaults. This situation underscores the need for robust export insurance mechanisms and government support to mitigate financial risks associated with trade in unstable regions.

For UPSC aspirants, understanding these concepts and their interplay is crucial for both prelims and mains. Questions may focus on the impact of geopolitical events on trade, the role of FTAs and export promotion schemes, and the importance of supply chain resilience. Mains questions could explore strategies for mitigating trade risks and enhancing India's export competitiveness in a volatile global environment. Specifically, GS Paper III (Economy) and GS Paper II (International Relations) are highly relevant.

Visual Insights

India's Tea Export Destinations Affected by West Asia Conflict

Map showing key West Asian countries importing Indian tea and potential disruption due to the conflict.

Loading interactive map...

📍Iraq📍UAE📍Iran📍Saudi Arabia📍Strait of Hormuz

More Information

Background

The current situation is unfolding against a backdrop of increasing geopolitical instability in West Asia. The Free Trade Agreement (FTA) between India and the UAE, signed in 2022, was intended to strengthen economic ties and boost trade. However, such agreements are vulnerable to external shocks, including armed conflicts and political instability, which can disrupt trade routes and financial flows. India's dependence on West Asia for trade, particularly for commodities like oil and basmati rice, makes it susceptible to regional conflicts. The region accounts for a significant portion of India's exports and imports, and any disruption can have a cascading effect on the Indian economy. The Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, designed to boost exports, is also being tested by rising logistics costs and insurance premiums due to the conflict. The potential disruption of key trade routes, such as the Strait of Hormuz, poses a significant threat to India's energy security and trade flows. The Strait is a vital waterway for oil shipments, and any blockage could lead to a surge in oil prices and disruptions in supply chains. This highlights the need for India to diversify its energy sources and trade partners to mitigate risks associated with regional instability.

Latest Developments

In recent years, India has been actively pursuing trade diversification strategies to reduce its dependence on specific regions. This includes strengthening trade ties with countries in Africa, Latin America, and Southeast Asia. The government has also been promoting the Make in India initiative to boost domestic manufacturing and reduce reliance on imports. The ongoing conflict in West Asia has prompted the government to take proactive measures to address potential disruptions. This includes monitoring trade routes, coordinating with shipping companies and insurance providers, and providing support to exporters facing financial difficulties. The RBI has also been asked to examine export credit availability and interest subvention support to help exporters cope with liquidity stress. Looking ahead, India is expected to continue its efforts to diversify its trade relationships and strengthen its domestic economy. The government is also likely to focus on enhancing supply chain resilience and promoting alternative trade routes to mitigate the impact of future geopolitical events. The emphasis on self-reliance through initiatives like Atmanirbhar Bharat will further insulate the Indian economy from external shocks.

Frequently Asked Questions

1. Why is the disruption of tea exports to West Asia a significant concern for India right now, especially after the FTA with the UAE?

The disruption is concerning because West Asia accounts for a substantial portion (45-50%) of India's total tea exports. The FTA with the UAE, signed in 2022, was intended to boost trade. However, the current conflict undermines the FTA's benefits by disrupting trade routes and increasing transaction costs, making Indian tea less competitive.

2. If UPSC asks about the impact of the West Asia conflict on Indian exports, what specific data point from this news should I remember to score well?

Remember the export volumes to key countries in 2024: Iraq (52.59 million kg), UAE (52.71 million kg), and Iran (11.25 million kg). These figures highlight India's dependence on the region for tea exports. A common trap is to underestimate the volume of exports to the UAE, given the FTA. Examiners might also test you on the percentage of total tea exports that go to West Asia (45-50%).

Exam Tip

Create a mnemonic to remember the export volumes to Iraq, UAE, and Iran. For example, 'IUI' – Iraq, UAE, Iran – followed by their respective export figures.

3. How does the potential closure of the Strait of Hormuz directly affect India's tea exports to West Asia?

The Strait of Hormuz is a critical shipping lane for tea exports to Iraq, UAE, Iran, and Saudi Arabia. Closure would lead to:

•Increased freight charges due to longer alternative routes.
•Rising insurance premiums due to increased risk.
•Extended transit times, delaying deliveries and potentially affecting tea quality.
•Disruptions to banking channels, making payments more difficult.

4. In the context of this news, what is the significance of the stakeholder consultation chaired by Suchindra Misra and Lav Agarwal?

The stakeholder consultation indicates the government's proactive approach to address potential disruptions to India's EXIM cargo flows. It shows that the government is aware of the risks and is seeking input from exporters and other stakeholders to formulate strategies to mitigate the impact of the conflict. This is important because it can lead to policy interventions that support the tea industry.

5. How could the current situation impact India's trade diversification strategy, and what alternative markets could be explored for tea exports?

The West Asia conflict highlights the need to accelerate trade diversification. Alternative markets for tea exports include:

•Africa: Many African countries have a growing demand for tea.
•Latin America: Untapped markets with potential for growth.
•Southeast Asia: Countries like Vietnam and Indonesia are large tea consumers.
•CIS Countries: Russia and other former Soviet republics have a long history of tea consumption.

6. This news mentions 'Make in India'. How is this related to the tea export situation?

While 'Make in India' primarily focuses on boosting domestic manufacturing, it indirectly relates to tea exports. A stronger domestic economy, fostered by 'Make in India', can provide a more stable base for the tea industry. Reduced reliance on imports through 'Make in India' can also free up resources for export promotion. However, the direct impact is limited, as tea is already a well-established export.

Practice Questions (MCQs)

1. Consider the following statements regarding the Free Trade Agreement (FTA) between India and the UAE: 1. The FTA was signed in 2022 with the aim of boosting bilateral trade by reducing tariffs and easing trade barriers. 2. As a result of the FTA, the UAE has become India's largest trade partner, surpassing the United States. 3. The FTA primarily focuses on trade in agricultural products, with limited emphasis on manufactured goods. Which of the statements given above is/are correct?

A.1 only
B.2 only
C.1 and 3 only
D.1, 2 and 3

Show Answer

Answer: A

Statement 1 is CORRECT: The FTA between India and the UAE was indeed signed in 2022 to boost bilateral trade by reducing tariffs and easing trade barriers. Statement 2 is INCORRECT: The UAE has become India's SECOND-largest trade partner, not the largest, after the United States. Statement 3 is INCORRECT: The FTA covers a wide range of products, including manufactured goods, not just agricultural products.

2. Which of the following statements is NOT correct regarding the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme? A) The scheme aims to reimburse exporters for taxes and duties incurred during the production process. B) The scheme is intended to enhance India's export competitiveness. C) Recent increases in RoDTEP rates have helped exporters cope with rising logistics costs. D) The scheme is relevant in the context of the ongoing conflict in West Asia due to its impact on export competitiveness.

Show Answer

Answer: C

Option C is NOT correct: Recent REDUCTIONS, not increases, in RoDTEP rates have added to the challenges faced by Indian exporters, particularly in the context of rising logistics costs due to the conflict in West Asia. The other statements are correct.

3. Assertion (A): The ongoing conflict in West Asia poses a threat to India's basmati rice exports, particularly from Punjab and Haryana. Reason (R): The conflict has disrupted banking channels and financial systems in parts of West Asia, leading to uncertainty about payment timelines. In the context of the above statements, which of the following is correct?

A.Both A and R are true and R is the correct explanation of A
B.Both A and R are true but R is NOT the correct explanation of A
C.A is true but R is false
D.A is false but R is true

Show Answer

Answer: A

Both A and R are true, and R is the correct explanation of A. The conflict in West Asia has indeed disrupted banking channels and financial systems, leading to uncertainty about payment timelines for basmati rice exports, particularly from Punjab and Haryana, which contribute significantly to India's basmati rice exports.

4. Which of the following trade routes is most likely to be affected by the ongoing conflict in West Asia, potentially impacting India's trade with the region? A) The Suez Canal route B) The Strait of Malacca route C) The Cape of Good Hope route D) The Strait of Hormuz route

Show Answer

Answer: D

The Strait of Hormuz is the trade route most likely to be affected by the ongoing conflict in West Asia. It is a critical waterway for oil shipments and other trade, and any disruption could significantly impact India's trade with the region.